The federal government has recently announced the establishment of the Book Industry Strategy Group (BISG) to focus on issues the book industry faces in the future. Authors have two representatives on the BISG from the Australian Society of Authors (ASA). The ASA reports on its website that the questions for consideration by the BISG will include "the future for hard copy printing and the impact of an expanding digital environment for all aspects of the industry".

In the meantime, the demand for iPads and e-readers continues to grow extraordinarily. Apple recently announced that the demand for iPads is so high in the US that it would need to delay shipments to the rest of the world by a month.

This article focuses on e-clauses in publishing agreements, specifically the grant of licence of primary and secondary rights. It identifies issues to watch out for with the licence for electronic formats. Also, this article discusses one of the impacts of e-clauses, higher royalty rates.

E-Clauses In Publishing Contracts

Evolution of Readers uploaded to Flickr by jblyberg
licensed under a Creative Commons Attribution 2.0 licence

Authors will likely be facing increasing pressure from publishers to licence to the publisher the rights to exploit their works through production, distribution and sales of the work in electronic (e-books) formats and print on demand (POD) formats in the grant of rights section of book publishing agreements.

Clauses in publishing agreements where the publisher controls the electronic rights in an author’s work should be clear and unambiguous to avoid confusion over possible future markets. This type of clause should only be expressed as a licence, not an assignment of rights. The need for clarity in the licence clause is particularly important now as electronic formats can cut across the traditional categorisations of "primary" and "secondary" (also referred to as subsidiary) rights.

1. Primary and subsidiary rights
'Primary rights' for the publisher usually cover the publisher's right to publish the work in a printed book format in hard or soft cover editions, and to reprint those editions as required. However, it really depends on the particular contract with the publisher, as the notion of primary rights can also include translation rights, book club, special editions and serialisations². These markets can be important markets and possible future sources of revenue.

The term 'subsidiary rights' traditionally means rights considered to be subsidiary to the primary right to publish in hard or soft copy book format.² Subsidiary rights historically encompassed electronic rights (not any more), film/television, foreign language, audio, serial, Braille, large print rights, merchandising and performance rights. In the digital era, electronic rights and rights that will allow works to be published into new media are now going to be the subject of the licence of primary rights sought by the publisher.

An 'e-clause' in a publishing agreement will provide for the grant of primary rights to the publisher by specifically including a grant by the author to the publisher of the sole and exclusive right to produce, publish, distribute and sell editions of the relevant work in both e-book and POD formats. The language of the primary rights licence clause may also be expressed to more specifically define the world wide rights to publish and sell the work in digital formal where the agreement is confined to purely electronic formats. In purely electronic publishing agreements, the term 'digital format' will be more precisely defined to include (but not be limited to) the following: disk, CD, electronic download or any other digital format whether it is known or unknown at the time the contract is negotiated.

Where the agreement is only for electronic media, these are also usually for shorter periods, of say, one year which are automatically renewed with a mutual right to terminate by either party on say, 90 days notice before the end of a term. This type of licence may also include an undertaking by the publisher to publish the work in new digital formats as these are introduced and may include a restriction on the publisher including the work in compilation products without the author’s express permission.

The scope of the licence of primary rights will usually be expressed to cover the English language and all countries throughout the world.

The ASA also recommends that electronic publishing agreements include an obligation on the publisher to "utilise reasonable technological protection measures to safeguard against unauthorised copying.³"

The licence of primary rights clause will also likely contain an express prohibition on the author from interfering with or infringing on the publisher’s primary rights by allowing anyone else to utilise any part of the relevant work in any of the electronic formats. This last prohibition makes the scope of the licence absolutely clear and reinforces that it is ‘sole and absolute’ to the publisher and for no one else in electronic formats.

2. Reservation of subsidiary rights
A typical subsidiary rights clause for the author in a publishing agreement for a book or e-book will provide that any other rights not specifically granted to the publisher are reserved by the author for the author’s sole use and benefit. There will also likely be a specific statement along the lines that the author retains all subsidiary rights or the exclusive right to sell or licence not in conflict with the rights granted to the publisher in whole or in part. These rights will include, for example, film, television, foreign language, large print, Braille, audio and serialization as a non-exhaustive list.

3. Higher royalties
The other area of a publishing agreement that is impacted by the move to electronic formats is the royalty clause. The usual royalty in book contracts is somewhere around 10% of the recommended retail price (RRP)⁴ going up to 15% for more extended print runs over say, 5,000 books.

In electronic publishing agreements the royalty rates will likely be in the vicinity of 45% of sale proceeds received by the publisher from either:

1. third parties, such as booksellers, distributors, book clubs, web sites; or
2. direct sales by the publisher.

Where the contract expresses the royalty as a percentage of net revenue, the royalty rate will likely be higher, for example, 50% of net revenues or net receipts.

It may be more prudent for authors to insist on the revenues to be calculated on a percentage of proceeds received from third parties by the publisher or the publisher through direct sales, as there will likely be third parties involved other than the publisher in the marketing and sales of books in electronic formats.

This substantial rise in royalties on books in e-formats may be attributed almost entirely to the vast drop in the cost of production (printing and paper) and because the scope of the licence is world-wide rather than limited geographically to a particular territory, such as Australia.

Authors should expect to receive royalties in the order of up to 50% of the publisher’s net revenues for sales in electronic or POD formats.

Summary

1. Clarity
The grant of the primary rights licence to the publisher in electronic book publishing agreements (or more traditional publishing agreements that will extend to electronic formats) needs to be clear and explicit. If necessary, the grant of primary rights clause should be split up into the different formats to avoid later confusion over possible markets, so that it is clear which formats the publisher has the exclusive rights to publish and sell the work:

1. Digital formats (electronic download, disk, CD/CD-Rom, e-book reader or similar media excluding film or motion picture/television/video/DVD rights)
2. Print on demand trade (or this may be academic or educational) hard cover or paperback
3. Traditional print run trade (or this may be academic or educational) hard cover or paperback
4. Audio formats including audio cassette, audio-CD; or
5. Other rights as applicable to be specified.

2. Specific royalty clauses
The royalty clause also needs to be clear on the royalties for the different formats:

1. The royalty should be specified for readable digital formats with a percentage expressed on the retail price for sales of the works by the publisher direct;
2. The royalty clause should specify whether the royalties are split or a percentage should be inserted where digital books are sold through third parties rather than the publisher or the royalty clause should make it clear that the royalty covers all sales, including sales through third parties;
3. A separate royalty may need to be inserted for POD formats based on the cover price or RRP for sales directly through the publisher or third parties;
4. Revenues should not be withheld against returns as a general rule in royalty clauses.

* Andrea Allan is a Senior Associate at Rockwell Bates Lawyers, Melbourne and is a registered Trade Marks Attorney. Andrea has an arts background, having majored in fine arts in her arts/law degree and worked as an editorial assistant at Oxford University Press prior to starting her career in law and is currently completing her Master of Laws at the University of Melbourne.
¹ Rich, Lloyd L. Electronic Rights: Publishing Agreement - Grant of Rights & Royalty Clauses, The Publishing Law Centre, 1163 Vine St, Denver, Colorado, http://www.publaw.com/erights2.html at p. 2
² Ibid, page 2
³ Australian Book Contracts, 4th Edition, 2009, Australian Society of Authors Limited, p. 3
⁴ Ibid, page 8

Relevant Arts Law agreements and publications:

Contracts Information Sheets and Glossary

Copyright Information Sheet

Useful links:

Australian Society of Authors

Email to a friend